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Hershey Media Report 7/27/16
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Mondelez sinks its teeth into China’s chocolate market
Jul 26, 2016 | Financial Times
By Lindsay Whipp
Mondelez International will make its first major foray into China’s tricky chocolate market in September, as it introduces its $2bn Milka brand at a time when rival and recent takeover target Hershey battles falling sales in the country. -
Does This Settlement Put a Hershey Company Buyout Back on the Table?
Jul 27, 2016 | Madison.com
By Rich Duprey
Late last month, Hershey's board of directors unanimously rejected a $23 billion merger offer from global snack maker Mondelez International (NASDAQ: MDLZ). The deal would have combined the world's second largest confectionery company, Mondelez, with the fifth largest to create the leading international candy and snack company with an 18% share of the market. -
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Jul 27, 2016 | CNBC
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Mondelez sinks its teeth into China’s chocolate market
Jul 26, 2016 | Financial Times
By Lindsay Whipp
Mondelez International will make its first major foray into China’s tricky chocolate market in September, as it introduces its $2bn Milka brand at a time when rival and recent takeover target Hershey battles falling sales in the country.
The US company, which also owns Cadbury, will sell Milka at “slightly above” average chocolate prices in China, says Tim Cofer, Mondelez’s chief growth officer. He declines to give any sales targets.
Mr Cofer says he is confident of the $2.8bn market’s long-term promise, citing low penetration and Mondelez’s 30 years of experience selling other sweet treats and snacks in China. He also talks of creating gifting opportunities on top of existing ones and the growth of online sales, which Mondelez plans to exploit via a partnership withAlibaba.
China’s per-capita consumption of chocolate is 100g annually, compared with 8kg for the UK, 1.6kg for Brazil and 5kg for Russia, Mr Cofer says. The market is dominated by Mars’ Dove brand and Mondelez plans to launch 12 different Milka products, with special editions for specific holidays, for instance.
“The notion of indulgence and pleasure, such as chocolate, ice cream, cookies, is underdeveloped in broader snacking in China, but is one that is poised for significant growth,” Mr Cofer says. “Chinese consumers continue to seek out chocolate as a way to treat themselves and also as an expression of thanks and gifts.”
The food and drinks industry will be watching Mondelez’s push into China closely, as the market is going through a difficult period. After an initial spurt of fast growth, Euromonitor estimates a second year of declines in retail sales of chocolate in the country this year. This comes amid a broader economic slowdown. But, says Ben Cavender of China Market Research, Chinese consumers, like their peers in the US, are increasingly looking to healthier snacks and have not grown up consuming chocolate.
Mondelez has minor exposure to the Chinese chocolate market through a small volume of imports of its Cadbury and Toblerone brands. But it says that the introduction of Milka, which will be produced in the country using milk imported from the Alps, marks its serious launch into the market.
The push comes on the tails of Mondelez’s bid for chocolate rival Hershey, whose sales in China have been falling amid the broader economic slowdown and the integration of its business with a domestic acquisition. While Hershey’s board swiftly rebuffed Mondelez’s $23bn offer, there remains speculation that chairman and chief executive Irene Rosenfeld could return with a higher bid. Mr Cofer declines to comment on the situation.
While Mondelez also owns Cadbury, Mr Cofer says that the company is introducing Milka on the back of research that suggested Chinese consumers would appreciate the taste.
In 2008, before Mondelez’s acquisition of Cadbury, the brand was forced to recallsome of its China-made chocolate bars amid concerns they were contaminated with the industrial chemical melamine. Mr Cofer says that Cadbury’s problems back then have not played a role in the decision to move ahead with Milka first, adding that this was a “dated situation”. Cadbury pulled out of producing chocolate in China in 2010.
China Market Research’s Mr Cavender says that companies will have to be prepared to spend on marketing, and research and development to convince Chinese consumers to eat more chocolate.
Marcia Mogelonsky, director of insight for food and drink at Mintel, says “there’s always room to grow in China” because of the sheer size of the market. She adds that while there has been a crackdown on ostentatious gifting there is an opportunity for smaller products, such as chocolate, to be seen as a more acceptable present.
“We are for the long term unequivocally bullish on opportunities in China,” says Mr Cofer.
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Does This Settlement Put a Hershey Company Buyout Back on the Table?
Jul 27, 2016 | Madison.com
By Rich Duprey
Late last month, Hershey's board of directors unanimously rejected a $23 billion merger offer from global snack maker Mondelez International (NASDAQ: MDLZ). The deal would have combined the world's second largest confectionery company, Mondelez, with the fifth largest to create the leading international candy and snack company with an 18% share of the market.
Hershey offered no explanation for the rejection, only that it saw nothing in the bid that warranted further discussion with Mondelez.
But the Hershey Trust has resisted takeover attempts in the past, such as when gum maker Wm. Wrigley Jr. offered to buy the chocolate company in 2002 for $12 billion. Hershey rival Mars eventually acquired Wrigley for $23 billion in 2008.
Hershey also explored the possibility of being acquired in 2007 by U.K. rival Cadbury and then coming to Cadbury's rescue three years later when it was being pursued by Kraft Foods, but dissension between the company and the trust caused both efforts to go nowhere. Kraft, which became Mondelez, ended up buying Cadbury.
Hershey sells Cadbury candy under license here in the U.S., while Mondelez sells the candy internationally, and it was that affiliation that formed the basis for the snack company's bid for the chocolate maker.
However, a deal between the Pennsylvania attorney general and the charitable trust over allegations of conflicts of interests and overcompensation of trustees could change the composition of the organization enough that future merger deals might not run into the same brick wall.Trust but verify
The Hershey Trust was established in 1905 by company founder Milton Hershey and his wife. It owns over 8% of Hershey common stock, but controls some 81% of the voting shares and oversees not just the chocolate maker but also the Hersheypark theme park, a minor league hockey team, and a school for underprivileged children established in 1909.PauseCurrent Time0:00/Duration Time0:00Loaded: 0%Progress: 0%0:00Fullscreen00:00Mute
Although made by Nestle, KitKat wafers are sold by Hershey under license, an affiliation that could attract the global confectioner. Image Source: The Motley Fool
But it has operated over the years as a fractious charity that has been embroiled in scandal, most recently when the trust's chief compliance officer was put on leave after it was revealed the board spent $4 million investigating insider trading charges and conflicts of interest surrounding him. In April, trustee John Estey, an aide to former Pennsylvania Gov. Edward Rendell, pleaded guilty to wire fraud attributable to campaign contributions. The trust has also been accused of lavish trustee compensation and frivolous spending, such as the $12 million it spent to buy a golf course, only to close it, because it was losing money.
According to Reuters, the attorney general's office has reached a preliminary settlement with the trust. The agreement, which helps Hershey avoid a legal battle, will limit trustee terms to 10 years, while three current trustees will be forced to resign by the end of 2016 as they will have reached or far exceeded that service threshold.
Fresh blood on the trustee board could put an acquisition back on the table, though even if the trust agreed, the attorney general still could step in and squash any takeover. That's because the trust is legally obligated to continue financing the Milton Hershey School that is supported by Hershey's profits. So if the attorney general believes the school's funding might be in jeopardy, it could step in. When Wrigley attempted to acquire Hershey, the attorney general's office also sued to block the deal.
Many observers believe the Hershey Trust to be a sclerotic organization that has thwarted efforts to improve the candy maker. With new faces serving on the trust, Hershey itself may be in play again.Nestle has been rumored as a potential suitor, but it's possible Mondelez will return with a new offer too, as analysts think Kraft Heinz might be in pursuit of the snack maker, and Mondelez will want to fend off any acquisition attempts itself by gobbling up Hershey.
Hershey investors may just find themselves looking at an even sweeter deal in the near future as rivals try to shore up their own bottom line.
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Jul 27, 2016 | CNBC
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Rough transcript: and some changes in the industry, like for instance mondelez making that bid for Hershey.
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Rough transcript: And mondelez I don't believe has said anything on Hershey, though I know Irene Rosenfeld will join us later on the show.
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